Capitalist World Posted February 5, 2013 Share Posted February 5, 2013 After the recap the company has about 29M shares O/S trading around $7.75-8.00 today. Tomorrow earnings come out and I am expecting a mixed bag but "adjusted" go forward earnings should be around $46M but there is substantial uncertianty with "one time" costs and this last Qtr was a transformational one but it should set up nicely to see what can be expected on a go forward basis. The big question is did the restructuring hurt revenue and what is the print division decline rate vs Digital growth rate. We all see this as a "Cigar Butt" but its pretty cheap and there are a lot of motivated former debt holders that are dumping the equity haphazardly with wild daily price swings. I picked up 5000 shares by bidding $7.10 when the Bid-ask was 7.50-7.80 but only a few borad lots between my price and the B-A spread. Now holding 10K shares and looking for a one year target valuation of high teens at least. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted February 5, 2013 Share Posted February 5, 2013 It definitely looks ugly because it's a declining business and peers like Supermedia and DEXO are trading as if they are going to go bankrupt for a second time. Link to comment Share on other sites More sharing options...
Capitalist World Posted February 5, 2013 Author Share Posted February 5, 2013 The sellers in the last 5 weeks have been former debt holders and equity is a foreign concept to them, so they dump it at any price (hence stink bidding). The warrants are exercisable at $28.16...a LONG way from here and they are trading at high valuatons relative to the common. Tomorrow we will know if this frog is a prince or just another frog.... Link to comment Share on other sites More sharing options...
Capitalist World Posted February 5, 2013 Author Share Posted February 5, 2013 Earnings today: Focusing on Q4 since a number of one time costs obscure the true picture: CF per share in Q4 = $2.13 EBITA per share Q4 = $4.88 FCF per sharein Q4 = $1.66 so trading at less that 1x CF and about 1.3 x FCF Link to comment Share on other sites More sharing options...
no_free_lunch Posted February 8, 2013 Share Posted February 8, 2013 Capitalist World, it looks like as a result of the recap debt payments will be roughly half of what they used to be. Given that the recap happened end of December, would the 4th quarter CF not be understated relative to go forward? Link to comment Share on other sites More sharing options...
Packer16 Posted February 8, 2013 Share Posted February 8, 2013 Of the three (now two) directory firms, Yellow is the cheapest and the EBITDA margin of 50% is incredible. Packer Link to comment Share on other sites More sharing options...
Capitalist World Posted February 8, 2013 Author Share Posted February 8, 2013 The Recap was effective Dec 20th so the last reported quarter was difficult to gauge "normalized" earnings but the top line number looked OK. This quarter will reveal what type of company we have here. Link to comment Share on other sites More sharing options...
Packer16 Posted February 9, 2013 Share Posted February 9, 2013 I took another look at this and the biggest issue is the declining cash flow. Next year EBITDA is expected to decline by $131 m out of $566 m for 2012. That gives you the ability to pay back $312 m of debt (after cap-ex of $40m and IE of $83m). So at the end of 2013 you have $489 m of debt. If EBITDA goes down by the same amount in 2014, you have $169 to pay down the debt. If you continue by 2016, you don't have enough cash to pay off the debt. So for this pay-off you either have to have a take-out or reduction in decline in EBITDA. Packer Link to comment Share on other sites More sharing options...
no_free_lunch Posted February 9, 2013 Share Posted February 9, 2013 Packer16, These are good points, I always like to hear the bear case. Take my comments here with a grain of salt as I only learned about yellow media last week (thanks Capitalist World) and am still doing DD. What you might be missing is that yellow media is effectively 2 businesses. The first being old-school printing of phone books, this business is indeed dying but will pay off a fair amount of the debt before it goes down, IMO. However, they are reporting online revenue of $360M (according to their main IR site), this business appears to still be growing. I remember reading in one of their filings, they had 15% Y/Y but I don't recall what quarter that was for. So if the old-school business can pay down a big chunk of the debt before it disappears you are still left with the online business. Let's say they get the debt down to $200M in the next 4 years, I think you had suggested they would be below that within two. At that point let's assign zero value to the traditional business. You would then be paying $200M for stock, and $200M for debt for an EV of $400M. This $400M is against the $360M online business. If their margins are 50% overall they are likely even higher for online but we'll ignore that. The online business should be able to pull in EBITDA in the $150M+ range this year. So you are basically getting the online business for less than 3X EBITDA if I am not missing anything. With taxes and interest on the $200M debt (which keep in mind will probably be paid down further) you are probably getting the business for a PE of 2-3. That's how I see it anyways, I am still fairly new to it so maybe I am missing something big. I think in the next few quarters after the stigma of the recap diminishes and after the converted bond sellers are done selling this thing *could* have some real upside. It is all a question of how well the online business does going forward and how long they can milk print. Link to comment Share on other sites More sharing options...
Packer16 Posted February 9, 2013 Share Posted February 9, 2013 Were you able to find a break-out of profitability by segment (on-line vs. print)? I am not familiar enough with the industry to know if the profitability is from the on-line or print. I also don't know how much of the infrastructure would remain if print went away or if there is any "common" infrastructure between the segments. Packer Link to comment Share on other sites More sharing options...
Uccmal Posted February 10, 2013 Share Posted February 10, 2013 I held ylo for a time a couple of years ago. Free cash flow has dropped by ten times since then. They have done multiple writedowns in the multple billions of dollars, and now this recap. The investors in this had a choice. Take stock for their debt, or take zero for their debt. Marc Tellier was taking an obnoxiously high payout for himself while Rome burned. He should be at the top of Canada's list of worst CEOs. My personal opinion is the business goes to bankruptcy. The print space is absolutely dead, and the online is far too competitive to keep that cash flow going. Link to comment Share on other sites More sharing options...
finetrader Posted February 10, 2013 Share Posted February 10, 2013 I own this stock and warrants too. Me too would like to profit from this actual P/FCF=1 in the short term. I'm not planing to hold this stock long term. I will wait for the next quarter for a better picture of this recapitalized company. Link to comment Share on other sites More sharing options...
finetrader Posted February 10, 2013 Share Posted February 10, 2013 I own this stock and warrants too. Me too would like to profit from this actual P/FCF=1 in the short term. I'm not planing to hold this stock long term. I will wait for the next quarter for a better picture of this recapitalized company. Link to comment Share on other sites More sharing options...
Capitalist World Posted February 10, 2013 Author Share Posted February 10, 2013 This is a cheap option but will take 4-6 qtrs to see if the business can stabilze...I am willing to wait that long here is the MD&A from last Qtr: http://www.ypg.com/images/ckeditor/files/2012_Q4_MDA.pdf KEY POINTS: Revenues decreased by $221.2 million or 16.6% to $1,107.7 million compared to the previous year. If we exclude the results of Canpages, LesPAC.com (LesPAC), YPG USA and our Deal of the Day products, which are entities or lines of businesses we no longer operate in, revenues decreased by 11.9% compared to the previous year. Online revenues reached $367.2 million in 2012, representing a growth of 6.1% in 2012. Excluding the impact of the Canpages, LesPAC and Deal of the Day businesses and YPG USA business, online revenues increased by 15.7% during 2012 when compared to the same period last year. Income from operations before depreciation and amortization, impairment of goodwill, intangible assets and property, plant and equipment, acquisition-related costs and restructuring and special charges (EBITDA) decreased by $109.1 million or 16.1% to $570.6 million compared to the previous year. If we exclude the results of Canpages, LesPAC, YPG USA and our Deal of the Day products (THINK GROUPON), EBITDA decreased by 15% compared to the previous year. As at December 31, 2012, the penetration of our 360º Solution offering, which we define as advertisers who subscribe to 3 product categories or more, amongst our advertiser base was 16.5% compared to 5.5% at the end of the same period last year. Mobile products continue to be a key component of the Yellow Pages 360º Solution, having reached a penetration of 8.0% in the fourth quarter of 2012 compared to 1.1% for the same period last year. As at December 31, 2012, the Company had approximately 24,600 Canadian SMEs purchasing mobile products, representing approximately 46,600 mobile units. Online – We remain focused on increasing traffic and improving the user experience across our online properties. Online visits on YPG’s network of sites reached 103.4 million visits during the fourth quarter of 2012, compared to 98.4 million visits for the same period last year. YellowAPI.com – As at December 31, 2012, over 2,500 developers had signed up to use our platform compared to 1,500 at the same period last year. As at December 31, 2012, our mobile applications were downloaded more than 5.0 million times compared to 3.7 million times as at the end of last year. Mandatory Redemption Pursuant to the indenture governing the Senior Secured Notes, the Company is required to use an amount equal to 75% of its consolidated Excess Cash Flow for the immediately preceding six-month period ending March 31 or September 30, as applicable, to redeem on a semi-annual basis on the last day of May and November of each year, commencing on May 31, 2013, the Senior Secured Notes at a redemption price equal to 100% of the principal amount thereof from holders on a pro rata basis, subject to the Company maintaining a minimum cash balance of $75 million immediately following the mandatory redemption payment. Excess Cash Flow, as defined in the indenture governing the Senior Secured Notes, means the aggregate cash flow from operating activities adjusted for, among other things, payments relating to interest, taxes, long-term employee compensation plans, certain pension plan contribution payments and the acquisitions of property, plant, equipment and intangible assets. The Company is required to make minimum annual aggregate mandatory redemption payments of (i) $100 million for the combined payments due on May 31, 2013 and November 30, 2013, (ii) $75 million for the combined payments due on May 31, 2014 and November 30, 2014, and (iii) $50 million for the combined payments due on May 31, 2015 and November 30, 2015. Link to comment Share on other sites More sharing options...
no_free_lunch Posted February 10, 2013 Share Posted February 10, 2013 Were you able to find a break-out of profitability by segment It's hard to break out the numbers as the financials are somewhat opague on revenue by segment. That actually does concern me a bit. Given how cheap the stock is, you would think that if online has decent earnings then you would show it. I know there would be basically complete overlap on the sales force. They need people to go business to business either way. Did some basic research on their product lists and while they might do okay given less competition in canada I am not sold on it. There was an article which said they charged $150/month for an extremely basic website. I think there was some search engine optimization thrown in but I'm not sure. It seems very expensive to me and UCCMAL is correct, there is a lot of competition and websites with SEO are getting easier and easier to build. You don't need to be very technical to do this stuff these days. That said, there might be some value to the sales force that has all of these contacts with local businesses. I mean they have over 300k customers that has to be worth something no? I don't know, it's a tough one, the company is so cheap but it's debatable whether the online business will be able to grow. Need to think on this one but will probably take a small speculative position given that I've spent enough time on it. Link to comment Share on other sites More sharing options...
Junto Posted February 10, 2013 Share Posted February 10, 2013 My personal opinion is the business goes to bankruptcy. The print space is absolutely dead, and the online is far too competitive to keep that cash flow going. The challenge that people cannot establish and is creating uncertainty/opportunity is the terminal life of the print business. I have continued to own SPMD for a while now, so I see this is an opportunity. The business has been one on of the easiest earning streams to model. I am not as familiar with Yellow Media, but the industry is shrinking but not extinct. In my opinion, the print business has roughly a ten year life with most the revenue losses coming in the first five years. The online business will not be as large as the print but still needs to find ways to differentiate itself. The businesses are competing/defining their position by bundling and providing online website and SEO services to small businesses. Certainly a cigar butt investment. Link to comment Share on other sites More sharing options...
no_free_lunch Posted February 12, 2013 Share Posted February 12, 2013 I would high recommend that anyone considering yellow media read this article. It is pretty scathing of the current leadership. The CEO essentially jacked the company up with debt to make some acquisitions, ultimately sold one of the acquisitions off for a large loss and used the proceeds for share buybacks rather than paying down the debt. Ultimately the company was forced into the present recap which incurred a huge loss on the prior shareholders. http://www.theglobeandmail.com/report-on-business/rob-magazine/how-did-yellow-medias-stock-go-from-17-to-17-cents/article559444/?page=all The past is the past I suppose, but my initial thesis on the company was based on what I perceived as an ignorance of their digital business. However, if you read the article it is debatable how viable the digital business really is. True, they have good sales numbers right now but all they are doing is providing web hosting and SEO. People are complaining about the quality of the service. People are complaining about the prices. I think that due to their relationship with customers they have been in a good position to switch them over to their digital format but my fear is that they will start to experience attrition as competitors move in. Unlike the old print business I don't really see a moat with the new offering. Link to comment Share on other sites More sharing options...
Uccmal Posted February 12, 2013 Share Posted February 12, 2013 No_free_lunch, The Globe article only underscores what I said above. Management at this company is the worst of the worst. In the US Tellier would be getting his ass sued off. That he is still there at all underscores the amount of inbreeding on Canadian BODs. The past is also the future with this company. Bankruptcy is the likely outcome. Fine trader obviously sees the cigar butt, but I dont even see that much. Capitalist World: look up yellow on past threads here to get some colour. A. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted February 12, 2013 Share Posted February 12, 2013 Tellier seems to have engaged in a strategy similar to Supermedia/Idearc and Dex. The other phonebook companies have overspent on online acquisitions and may head into bankruptcy for a second time... so that strategy doesn't seem to be a great one. 2- Fundamentally how these companies work is that they have a lot of salespeople that try to sell these things to small businesses. A lot of small business owners may spend money on advertising because they think that you need to advertise to make money (and that advertising has positive ROI). Yes, even small business owners will buy hopes and dreams. While I'm sure that the phonebook has decent ROI for some of its customers, I think that a lot of customers buy advertising in it because they don't know any better. If you read interviews with small business owners (or watch TV shows like Kitchen Nightmares), you will see that small business owners spend a lot of money on stupid things. (I'm guilty of that too.) Just because they are selling it doesn't mean that the product (online or the physical phone directory) has a lot of value. Link to comment Share on other sites More sharing options...
finetrader Posted May 7, 2013 Share Posted May 7, 2013 I sold all the warrants and commons I had. I just hold the debenture I received from the reorganization. All in all I'm sitting on a ~25% gain in 8 months. So ~37.5% annualized gain. Link to comment Share on other sites More sharing options...
Junto Posted May 8, 2013 Share Posted May 8, 2013 Nice trade. SPMD...now DXM after merger with DEXO has also turned out to be good to me...I have not sold position but seriously considering it. Link to comment Share on other sites More sharing options...
siddharth18 Posted November 6, 2013 Share Posted November 6, 2013 Anyone still following this? Looks like they've made some nice progress with Tellier being replaced by someone who's not as inept as Tellier! Compare that to Yellow's US counterpart - Dex Media - which can't seem to get the digital growing while print in both countries is on its way out. Q32013 results were out today. Equity Value ~ $400M Net Debt ~ $600M Enterprise Value = $1 billion. Also, the "Company is required to use an amount equivalent to 75% of its consolidated Excess Cash Flow for the immediately preceding six-month period ending March 31 or September 30 to redeem the Notes at par" will prevent any acquisitions/empire building. Link to comment Share on other sites More sharing options...
tengen Posted November 6, 2013 Share Posted November 6, 2013 I would need to take a closer look at the recent financial statements but here are my current opinions on Yellow: the printed directory business is going to zero, perhaps sooner than people think (definitely sooner than I thought a couple of years ago when I held a position) their profit margins are going to shrink a lot as the digital business is far more expensive and competitive than the print business the digital business is growing but I'm not sure its enough to justify the current market valuation Link to comment Share on other sites More sharing options...
siddharth18 Posted November 6, 2013 Share Posted November 6, 2013 I would need to take a closer look at the recent financial statements but here are my current opinions on Yellow: the printed directory business is going to zero, perhaps sooner than people think (definitely sooner than I thought a couple of years ago when I held a position) their profit margins are going to shrink a lot as the digital business is far more expensive and competitive than the print business the digital business is growing but I'm not sure its enough to justify the current market valuation No question that all of what you said is true. To what degree though, is the question. And how your assumptions/expectations parallel/contravene market's assumption is what this ultimately is about. Link to comment Share on other sites More sharing options...
tengen Posted November 6, 2013 Share Posted November 6, 2013 To what degree though, is the question. And how your assumptions/expectations parallel/contravene market's assumption is what this ultimately is about. Absolutely. And I agree with your comment about Tellier and his replacement. Link to comment Share on other sites More sharing options...
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